MomentumOptions.com Pre-Market Update for 11/28/2022

Dow/ S&P Push Fresh Monthly Peaks

8:00am (EST)

The stock market was mixed on Friday following Wednesday’s news that showed interest rate hikes could start to slow next month. The Federal Reserve’s November meeting minutes revealed a majority of policymakers agreed it would likely soon be appropriate to slow the pace of rising rates.

This gave the major indexes a boost into Wednesday’s closing bell that pushed the major indexes towards the top, and just above, their recent trading ranges. Volatility edged up a tad with mid-August support levels back in focus.

Market Analysis

The Spiders Dow Jones Industrial Average ETF (DIA) was up for the third-straight session after tagging a high of $343.80. Late March and lower resistance at $343.50-$344 was recovered. A close above the latter would suggest a further trip towards $345.50-$346.

Support is at $342.50-$342.

RSI remains in a slight uptrend with key resistance at 75 holding. A move above this level would indicate a push to 80-85 and overbought levels from early January 2018. Support is at 70-65.

Sector

The Spider S&P Retail ETF (XRT) had its two-session winning streak snapped following the intraday pullback to $66.31. Near-term and upper support at $66.50-$66 and the 200-day moving average were breached but held. A drop below the latter would indicate weakness towards $65-$64.50.

Resistance is at $67-$67.50 with this month’s peak at $67.55.

RSI has rolled over with key support at 60 holding. A drop below this level would suggest a further slide to 55-50 and the lows from the start of the month. Resistance is at 65-70.

Market Outlook

Thanksgiving week followed the bullish tradition with the major indexes posting solid gains. The Dow was up 1.8%; the S&P 500 rose 1.5%; the Russell advanced 1.1%; and the Nasdaq rose 0.7%.

Coming into last week, a mini trading range had developed that we talked about lasting into Wednesday’s Fed update. The Dow and the S&P cleared the top of their trading ranges and was a bullish signal heading into Friday’s action. The Nasdaq and the Russell are trading in the middle of a two-week trading range.

The Dow is up 20% from its October 13th 52-week low at 28,660 that formed the perfect “double-bottom” with the September 30th bottom at 28,715. With the gains, the blue-chips are now only down -7% from the January 5th all-time peak at 36,952. The index appears to be on track to test 34,750-35,000 over the near-term with the April peak at 35,492. There are several layers of support on a fade from current levels starting at 34,000-33,750. A close below 33,500-33,250 and the 20-day moving average would suggest a near-term top. As far as the relative strength index (RSI), the Dow is near the August peak of 75 and a level that has been holding for nearly five years. This means the Dow has become stretched to the upside and typically fades from here. However, overbought levels in the low 80’s were reached in early 2018.

The last time the S&P traded and held it 200-day moving average was back in late March/ early April. The was a retest in late April on the break below this level that failed afterwards in late April. There was another failed attempt in mid-August and a great signal the overall market was peaking. At current levels, the index is less than 1% away from regaining it 200-day moving average and key resistance at 4,050. The September 12th high is at 4,119 and would be in play afterwards with the August 16th peak at 4,325. If both are reached, it would represent another 2% and moves 7% from Friday’s close at 4,026. Crucial support for the week is at 3,975-3,950 with a close below the latter suggesting a near-term top. RSI is reasonable at 60 and also peaked near 75 in April.

The Russell faces key resistance at 1,900 and the top of the current trading range with the mid-month high at 1,905. Continued closes above this level could easily lead to a run to 1,925-1,950 and resistance from the back half of August. The latter represents an upside move of 4% from Friday’s close at 1,869. Key support at 1,825 was challenged and last Monday with the low kissing 1,828. There is wiggle room to 1,800 on a close below 1,825 and the 20-day moving average but could be an early warning sign of a near-term peak for the small-caps.

The Nasdaq traded down to 10,999 and 10,975 to start last week with key support at 11,000 getting breached but holding in back-to-back sessions. There is more critical support at 10,950-10,800 and the 20-day and 50-day moving averages with a drop below 10,750 being a more bearish development. Key resistance at 11,200 was cleared and held on Wednesday and again on Friday. The next wave of resistance is at 11,350-11,500 with last Wednesday’s top at 11,310. RSI is at 55 for a neutral reading.

The August 12th intraday low on the VIX touched 19.12 with five-straight closes below the 20 level starting that day. It was a good signal of the market peaking following the inability by the bulls to push lower lows on the VIX afterwards. The bears quickly took advantage of this and were pushing 27.50-28 by the end of August. It will be imperative this time around the bulls crack 20 again and get below 19 to keep the current rally going into December. The 20-day moving average remains in a downtrend and the new target of signaling a near-term market top has moved down to 24.

The current trades we have open will carry us into mid-December and there could be a good chance to add another one this week if momentum stays. However, the one thing we need to continue to monitor into next month will be the possibility of a rail strike which could start as soon as December 9th.

This would absolutely cripple an already weak economy if there is a rail strike. So far, four of the 12 unions that represent half of the 115,000 rail workers have rejected new contracts. Although Congress could impose a workaround to protect the U.S. economy, the story will start to gain traction this week and i to next.

Momentum Options Play List

Closed Momentum Options Trades for 2022: 25-18 (58%). All trades are dated and time stamped for verification. New subscribers can look at the past history to see how the trades have played out or to research our Track Records. Do not risk more than 5% of your trading account on any one trade but do try to take all of the trades.

Please remember, all “Exit Targets” and “Stop Targets” are targets. You should not have any “Stops” entered to close any trades or “Limit Orders” in your brokerage account unless I list one. I will send out a “Profit Alert” or “New Trade” if I want you to close a position or if a new trade comes out. Otherwise, follow instructions at all times in the Daily‬ updates and Text Alerts.

Pure Storage (PSTG, $30.46, down $0.15)

PSTG December 32 calls (PSTG221216C00032000, $1.10, down $0.10)

Entry Price: $1.75 (11/14/2022)
Exit Target: $3.50
Return: -37% 
Stop Target: $1

Action: Friday’s low touched $29.80 with upper support at $30-$29.75 getting tripped but holding. Resistance is at $30.75-$31.

Earnings are due out on Wednesday, after the close. The company has topped expectations over the past four quarters. We will know the likely outcome of this trade on Thursday as I’m expecting shares could move up to 10% based on the numbers and outlook.

Verizon Communications (VZ, $39.02, up $0.10)

VZ December 40 calls (VZ221216C00040000, $0.45, up $0.05)

Entry Price: $0.55 (11/2/2022)
Exit Target: $1.10
Return: -18% 
Stop Target: None

Action: Lower resistance at $39.25-$39.50 was cleared but held after the morning trip to $39.36. Support is at $38.75-$38.50.

Rocket Companies (RKT, $7.73, down $0.02)

RKT December 8 calls (RKT221216C00008000, $0.30, unchanged)

Entry Price: $0.95 (9/9/2022)
Exit Target: $1.90
Return: -68% 
Stop Target: None

Action: Shares traded up to $7.84 with key resistance at $8 getting challenged and holding. Support is at $7.50-$7.25.

Diana Shipping (DSX, $3.97, down $0.19)

DSX December 6 calls (DSX221216C00006000, $0.10, unchanged)

Entry Price: $0.40 (8/18/2022)
Exit Target: $1.00
Return: -75% 
Stop Target: None

Action: Close the trade this morning to save the remaining premium.

This has been our longest running trade and it was a cheap way to play continued strength in the overall market as the major indexes were topping out in mid-August. We can revisit the stock and options if shares recover $4.50 and the 200-day moving average down the road.